An analysis by Plimsoll Publishing has found that 480 of the 1500 travel agents companies are in more debt now than they
Published: 16 Aug 2006
An analysis by Plimsoll Publishing has found that 480 of the 1500 travel agents companies are in more debt now than they have been in the last four years.
The analysis studied how high levels of debt are impacting the financial health of such companies. And it found using other people’s money to finance your company seems to be an increasing trend.
David Pattison, head of research at Plimsoll, said, “We are always surprised how no one at these companies seems to realise their debts are rising and the effect it’s having on the overall financial strength of the company. Unfortunately it’s not something they tend to measure until it’s too late. Our analysis spots these problems earlier”.
The Plimsoll analysis points to the 167 companies amongst the 480 where the debts are already impacting on their business and their competitiveness. Early warning signs include:
- Warning signs are often present up to two years before the debt problem becomes serious. Companies tend to swap short term debt for long term debt. This has little effect on the companies overall financial strength, particularly if the debts keep rising. It’s often a sign that the banks are concerned and are looking for more security. 32 such companies are named in the Plimsoll analysis.
- As the debt increases the company’s profitability will start to erode. Interest payments can in extreme cases, absorb all the profits. With rates rising, this will put further pressure on profitability. For 12 travel agents companies, high interest payments alone have already tipped them into loss.
- As this starts to take effect the company will push for extra growth. This puts further pressure on profitability, requiring extra working capital which frankly just encourages even more debt. At the 480 companies with high debts growth was good for 39 companies, seeing sales increase in the year.
- However, if these debts are allowed to go unchecked, any disturbance to the business could end in disaster. The loss of a key client, a large bad debt and even increases in interest rates could be the straw that breaks the camel’s back.
The full publication contains an individual profile for each of the largest 1500 travel agents companies. Aimed at non accountants, it simplifies the key performance measures and uses a series of graphs to plot load lines. These conclusive charts give both non-financial and financial readers a visual summary of each of the companies in the market.
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